West End leaders and high-end London retailers, hoteliers and pub owners have backed a Conservative Party pledge to restore tax-free shopping for tourists.

Tory leader Kemi Badenoch has promised to allow tourists to claim the VAT back on their shopping by reversing a rule change made after Brexit.

The decision to scrap the VAT refund scheme for international visitors in 2021 left the UK “less competitive” than many other European destinations, the Tories said.

Ms Badenoch, who was a Treasury minister in Boris Johnson’s Conservative administration at the time of its abolition, said tourists were “choosing rival cities in other countries” following the decision to scrap the visitor tax break.

Tory leader Kemi Badenoch visited designer outlet shopping centre Bicester Village in Oxfordshire after pledging to bring back tax-free shopping for tourists

PA

The bosses of upmarket London department store Fortnum & Mason, designer Paul Smith and the parent company of Claridge’s hotel in Mayfair hailed the policy change as “pro-growth” and “pro-jobs”.

The reversal has been one of the long-standing policy recommendations by BusinessLDN, a group representing the capital’s business interests.

Muniya Barua, deputy chief executive at BusinessLDN, said: “Reinstating VAT-free shopping would provide a welcome boost to London and the UK at a time when our retail, leisure and hospitality firms are up against surging costs.

“It would put us on a level playing field with the likes of Rome, Paris and Milan, which all offer this incentive to visitors. Scrapping this tax would drive a significant increase in tourism spending and provide an estimated £2.6 billion net return to the Treasury."

The Tory group leading Westminster City Council said it had been urging the UK Government to bring back tax-free shopping since it wrestled back control of the local authority from Labour in May.

Westminster leader Councillor Paul Swaddle said the move had the potential to boost foreign spending in London's West End shopping district, home to Oxford Street and Bond Street.

"This research further underlines what everyone knows — that London, as a global visitor centre, is losing out to other capitals in not courting our overseas visitors,” he said.

“It is madness to effectively signpost foreign shoppers to Milan or Paris when they could be spending money here in the West End.”

Mr Swaddle urged the Labour government to “put London on the same footing as its international competitors” by matching the Conservative pledge.

“The Government proclaims its intention to level up the country, but that shouldn't mean putting London at a disadvantage when money spent in Westminster will benefit the whole of the UK,” he added.

Maybourne, owners of the Connaught hotel, have backed the VAT refund move

Alamy Stock Photo

Visitor numbers to the UK have returned to near pre-Covid levels, but real-terms spending remains 8% lower than before the pandemic, according to estimates from tourism agency VisitBritain based on data from 2024.

The Tories said returning the VAT refund would be partly offset by a proposed “crackdown” on so-called “health tourism”, including more consistent charging of overseas patients ineligible for free treatment.

If evidence confirms the scheme pays its way, it would be extended to visitors from the European Union by the end of the next parliament, the opposition party said.

The pledge was accompanied by a joint statement from businesses backing the reintroduction of the VAT refund scheme.

Maybourne, which owns and manages The Berkeley and The Emory hotels in Knightsbridge and Claridge’s and The Connaught in Mayfair, were among those to put their name to it, along with Fuller, Smith and Turner, a pub group that operate a number of high-end venues across London.

Mrs Badenoch said: “Britain should be the place where the whole world comes to shop.

“We have iconic retailers, inventive designers and brilliant manufacturers, but they are being let down by a tax policy that is chasing their customers away. Holidaymakers are choosing rival cities in other countries for the simple reason that it saves them money.”

Labour accused the Tories of a “spectacular U-turn” over the policy pledge.

“Kemi Badenoch used to say tax-free shopping was a costly giveaway and now she’s trying to sell it as an economic miracle,” a party spokesman said.

A Treasury spokesperson said: “The UK is one of the most-visited countries in the world with international tourism driving billions into our economy.

“Visitors can still claim VAT relief where the items purchased are shipped directly to their home country as exports.”

Labour Prime Minister Andy Burnham last week announced plans to grant mayoral authorities power to levy a tourist tax.

Mayor of London, Lord Sadiq Khan, is pushing for the quick introduction of the tax in London to be charged at up to 5% of the cost of a hotel room.

The Tories have criticised the plan, saying it will add to the price of the family holiday and drive people to travel overseas instead for vacations.